Stacked rigs are seen along with other idled oil drilling equipment at a depot in Dickinson, North Dakota June 26, 2015. Since November, the Saudi Arabian-led OPEC cartel has held to a policy of unconstrained output, an approach many suspect is designed to flood global markets with more crude, push prices lower and punish rivals, including North Dakota, the second-largest U.S. oil producer. Picture taken June 26, 2015. REUTERS/Andrew Cullen

Cannibalizing the oilfield: Idle rigs scavenged for parts

October 7, 2015

Zach Koppang | Energy Media Group

In the ongoing effort to save money amidst the oil price slump, rig owners have taken to “cannibalizing” parts like motors and drill pipe from stacked rigs, according to Reuters.

To make repairs on the 800 some drilling rigs active in the U.S., equipment is being scavenged from the 1,100 rigs which were idled due to the price crash. The practice has become so widespread during this downturn that services companies and others are saying that even if prices were to make a significant rebound, it would be over six months before drilling and production would increase, an idea which has quelled concerns about another surge of activity driving prices down again.

As reported by Reuters, in a stable and high oil price environment, spare and replacement parts are typically purchased new from companies such as National Oilwell Varco (NOV) and Premium Oilfield Technologies, a small operation which makes equipment and spare parts for drilling rigs active in North Dakota to Texas.

NOV said there are currently enough rigs stacked that drill pipe could be cannibalized for up to a year before needing to place new orders. An oilfield services analyst told Reuters, “[Cannibalization] will slow the industry’s ability to ramp the rig count back up so it will delay the production response from oil prices.”

Although there is no hard data for the extent of cannibalization, the practice has become so commonplace that experts say there is a high possibility that the majority of the 1,100 inactive rigs have already been harvested for parts. Spare parts from idled drilling rigs have become so readily available due to an almost 15-year record high before oil prices began to plummet.

NOV Senior Vice President of Technology and Product Development Grant Almond told Reuters, “Cannibalizing is not an uncommon practice in the industry, and more so on land than offshore, but it has gone up in the downturn because more rigs are being retired or idled now.” Most parts are indeed coming from onshore rigs, however, offshore driller Noble Corp, for example, recently used a helipad and the floor from a worker’s cabin from a rig scheduled to be decommissioned and repurposed the parts to improve a rig being used by Hess Corp.

Meanwhile, investors have been urging companies to harvest more parts from more rigs to slow the decline of drilling rig daily rental rates. A portfolio manager from Tortoise Capital Advisors told Reuters, “Companies have to continue to scrap idle rigs and do all that they can to balance supply with demand.” Although a rebound in orders for new replacement parts is anticipated to follow an uptick in drilling activity, some services providers have taken their business overseas to escape the currently tumultuous U.S. shale markets. To read the full article, click here.

Oh ok thanks man. I mean i see rigs stacked here and there, but not as many as there should be. I’m in Minot though and it seems like companies aren’t leaving very much idle equipment just sitting around here lately. I’m guessing they are taking it out that way instead.

Chris Darden that sucks because I keep hearing that west Texas is one of the only places that are still staying somewhat busy. Apparently your production and extraction costs for wells are lower than we can pull off up here in the Bakken.

Yeah I’m not doing flowback work up here anymore in the bakken either lately, and I’m just working at a regular old job now. There are still companies doing some wells near Watford City and Williston, ND but it’s not steady out in the field and lots of shop time and maintenance type stuff for my buddies still doing it. I miss the oilfield and i hope to get back out there once work and oil prices pick up again. I think we’ll need at least $50-$60 /bbl for fracs and flowbacks to get busy again. We have a bunch of drilled wells up here that are just sitting capped and they won’t bother completing them until prices go up. We used to have it setup where companies had to frac and complete a well within 1 year to maintain the lease, but apparently they changed that now. Here is an article about that if you feel like reading about it. Thanks alot for the info and I hope stuff picks up again and you can get back out there. http://www.reuters.com/article/2015/09/14/north-dakota-oil-production-idUSL1N11K12220150914

It’s only one year for the first well. If the pad is producing the wells can sit indefinitely. That’s why the rigs jumped around so much a few years ago just drilling one or two wells. After that pretty much every company started batch drilling four or more at a time

Helms you suck you lie and deceive.keep your word. Quit changing things to accommodate the big oil companies.they have ruined our state nothing but crime and inflation.lots of oil and saltwater brine spills. And leaks.much never reported when trucks got paid by the loads and dumped waste all over into water and over the hills when no one was around. So they could hurry up and get another load. Quit your job. .maybe some one who cares about our quality of life will take over.nothing but inflation crime drugs prostitution. Those oil companies bought up opts a d kicked locals out.shame on them .hope they bottom out

Bear in mind for the most part the iron is all ‘new built’ in the last 7 yrs– there i damn little junk iron —
Cannibalize- scavenge parts from rigs not drlg for other rigs not drlg–?
That little exercise won’t last long–

Im thinking that the motivation is trying to limit expense so that the companies could look better on the year end shareholders reports. What are your thoughts on this?
I see a lot of this type of activity specifically for that purpose here in my area of the oil field.

By nature drlg contractors are anti- scrapping– market pressure is what sorts the iron- The industry is past that point with rig utilization so low.. And in tight times share holder will want to hold on to every penny— they see the scrap value and wonder what the later replacement will cost– all that is left is scrapping for tax write off.

Oil companies are greedy and started to many companies building rigs to keep up to their demands. Should kept 40 rigs in our area going steady for years as get 90 going for 2 then not drill anymore. Again greed kills workers, oil companies still pumping out of ground like crazy

Could of not had 90 rigs going got so many guys working rigs. I am not an oil expert but I knew this would be very short lived. Oil companies wanted that 135 dollar oil. Do you think they cared if companies over expanded themselves that when oil dropped they would not have income to cover payments on new rigs. Not at all think oil companies care that so many people are out of work in oil related jobs nope. See equipment everywhere from trailers to complete rigs. Trucking companies trucks sitting or looking to change the business to freight now. Jobs know one would take in boom people fighting over to just try to save things. Cost of everything out the roof because we are a have got province. Have got debt problems . If had kept drilling at a constant pace this would not be as bad.

The thing about West Texas is yes we still have 220 rigs operating but when a year and a half ago we had 620 that’s 400 rigs stacked lots and lots of guys fighting for work out this way plus the housing market is still through the roof…

well does that mean that new steel mill in pennsylvania will close? ALL the states are screaming for money for failing infrastrure, why not a tax on imported oil? jobs in energy ,+ jobs building roads and bridges

yes but they have been looking to raise taxes to pay for failing infrastructure for years , its going to happen sooner or later , this way we creat jobs in more then one way, and save our own oil and gas industry,

The sad part about these stacked rigs is that some are still being paid for or the contracts got bought out. Either way, the drilling company took the money and laid the hands off when they could have paid them clean up and do maintenance on the rigs for another 6 months to a year. Damn greed!

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